Investing Today Vs. Tomorrow: What You Could Gain

If you are living an adult life in the United States, or really anywhere, you probably hear at least a dozen admonitions a day. Brush your teeth or they'll fall out. Exercise or you'll get fat. Don't forget to recycle or you're ruining the planet. Don't forget your doctor appointment or you might have a problem. And, of course, don't forget to save for retirement or you'll have nothing left to live off of.

In reading this list, it makes sense that most people leave saving for retirement as the final item on their adult to-do checklist. After all, retirement is the furthest away. Certainly farther away than getting a cavity or getting fat. But is leaving off investing for retirement wise? (For more, see: Youth and Roth IRA Equals a Solid Retirement Plan.)

Hypothetical Example

Instead of further admonishments based on what you should do, why don't we look at the numbers, and you can decide for yourself. We will create two hypothetical people, Harry and Ron. Harry and Ron both decide to plunk down $10,000 into their retirement fund. Harry has heard how important investing is and has decided to start earlier, at 25, so he can finally get the weight off of his chest.

Ron, on the other hand, isn't too fussed. He piddles the money away on new toys, or worse yet, holds $10,000 in the bank for several years. His wife finally convinces him he should put $10,000 into a retirement account, at age 30. (For more, see: 5 Financial Planning Decisions You Won't Regret.)

Both Harry and Ron are deciding to retire at age 65. Assuming a 6% annual interest rate, let's see how much money they end up with.

Wow. At age 65, Harry is sitting on $102,857, while Ron has $76,861. By sitting on his cash a little longer, Ron missed out on $25,996, a 34% difference. Guess we might have to bump this priority up above buying more toothpaste.

While Harry may have outwitted Ron, there's someone else who was smarter than both combined, Hermione. Not only did Hermione put $10,000 into her retirement account at age 25, she also set up a contribution to credit her account $100 a month. That doesn't sound like much, but given time it could add up. Let's take a look at how she fares.

Hermione blows them out of the water. She will be retiring at age 65 with $294,553 to spend, a whopping 64% more than Ron and Harry combined. Hermione's $294,553 represents 3.8 times Ron's $76,861, and 2.9 times Harry's $102,857. All because she put away an extra $100 a month.

Without admonishing you, we've laid out your potential cash prizes for tackling the question of retirement early. We've discovered that not only is your initial contribution important, but also when you do it, and (most critically) how much and how often you contribute afterwards. (Spoiler Alert: Draco is sitting on $1,005,119 by contributing $5,500 a year.)

Best Time to Invest

Now all of this could seem extremely discouraging to older readers who are hoping to retire well. Don't fear. The real lesson here is: the best time to invest was yesterday, but today is a damn close second. Even Ron walks away with $76,861. The only way to start making money is to start investing. (For related reading, see: What to Do to Prepare for Retirement.)

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